Small investors shy away from equity MFs, but not HNIs

The efforts by mutual fund houses to woo new investors do not seem to be paying off. Even though the industry managed to grow its assets by 34 per cent in the last four years, the total number of investor accounts (folios), has shrunk 18 per cent during this period, according to data from industry body Association of Mutual Funds of India (AMFI).

Small investors, in particular, failed to be impressed by equity funds. They aggressively pulled out of this category of funds, despite such funds offering double-digit returns.

Thus, equity funds which used to make up almost 85 per cent of all investor accounts for the industry in 2010-11 saw their share fall to 74 per cent in 2013-14.

The total folios held by small investors in equity schemes have fallen by nearly a third since 2010-11. Banks and other financial institutions followed in their footsteps too. Their folios in equity schemes declined 24 per cent.

That said, high net worth individuals (HNIs) — defined as those who invested over ₹5 lakh in mutual funds — took an entirely different path. They seem to be betting big on equity-oriented schemes, which saw the highest folio addition in the past five years.

Other scheme categories that were favoured by HNIs were debt- oriented schemes, balanced and money market funds.

While small investors exited equity funds, they didn’t entirely desert mutual funds as an investment option. With rising interest rates, debt funds, which invest in government securities, corporate bonds and the money market, have seen a big influx of new investors.

The number of investor accounts in this category has surged by more than 75 per cent in the past five years. Gilt funds — which invest in government bonds alone and are considered a low risk investment option — were also fancied by small investors.

The other asset category that found big appeal among retail investors is exchange traded funds or ETFs, which passively mirror an index or asset. Gold was a favoured asset, with the total retail folios in gold ETFs more than trebled during this period. Likewise, the retail participation in other ETFs has grown six-fold.

Foreign institutional investors (FII) have been allowed to make investments in Indian mutual funds too. Liquid and debt oriented schemes added the largest number of FII accounts, followed by equity-oriented schemes.

Funds that invest abroad, for obvious reasons, and balanced funds were the two categories that clearly did not interest them.

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